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How well do you really understand seed-stage financing? – Stock Market Pioneer

How well do you really understand seed-stage financing? – TechCrunch

I’ve fundraised a lot. Tactically, fundraising is a skill like any other. You get better the more you do it. But practicing gets you nowhere if you don’t have a strong foundation in understanding a fundraising round’s core components.

As a founder, you will understand less than investors when it comes to fundraising. For investors, negotiating with founders is their full-time job. For founders, fundraising is just a small part of building a business. Understanding the basics of venture financing can help founders raise on better terms.

We’ll cover:

  • How financing works: SAFEs versus equity rounds.
  • How much to raise.
  • How to arrive at your valuation.

How financing works: SAFEs versus equity rounds

As a founder, you will understand less than investors when it comes to fundraising.

Venture financing takes place in rounds. The first stage is the pre-seed or seed round, then a Series A, then a Series B, then a Series C and so on. You can continue to raise funding until the company is profitable, gets acquired or goes public.

We will focus here on seed-stage funding — your very first funding round.

SAFEs

Post-money SAFEs are the most common way to raise funding. These documents are used by Y Combinator, angel investors and most early-stage funds. You should raise on post-money SAFEs using standard documents created by YC. Standard documents have consistent terms that have been drafted to be fair to both investors and founders.

By using the standard post-money SAFE, your negotiation can focus on the two terms that matter:

  1. Principal: The amount you want to raise per investor.
  2. Valuation cap: The value of your business.

About the author

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Janice Tilson

Janice has been phenomenal in the success of Stock Market Pioneer. She is the super dedicated types, always glued to her computer. She talks less, but when it comes to work, she is behind none. She is a tech geek and contributes to the technology section of Stock Market Pioneer.

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